Unemployment Dynamics in Emerging Countries: Monetary Policy and External Shocks

42 Pages Posted: 13 Nov 2017 Last revised: 19 Feb 2019

Date Written: July 2, 2018

Abstract

This paper quantifies the impact of three key external shocks -- external demand, interest rate, and uncertainty shocks -- on emerging market economies (EMEs). We find that external shocks have a sizeable impact on macroeconomic fluctuations in EMEs and that a considerable fraction of this impact is through the domestic stock market. A decrease in external demand and an increase in external interest rate and uncertainty lead to a higher unemployment rate, lower stock market return, and a depreciation of the domestic currency. The EMEs' monetary policy actively responds to external shocks and dampens their impact on domestic activity.

Keywords: Unemployment Dynamics; Monetary Policy; External Shocks; Emerging Markets

JEL Classification: E24; E52; F41

Suggested Citation

Horvath, Jaroslav and Zhong, Jiansheng, Unemployment Dynamics in Emerging Countries: Monetary Policy and External Shocks (July 2, 2018). Available at SSRN: https://ssrn.com/abstract=3067792 or http://dx.doi.org/10.2139/ssrn.3067792

Jaroslav Horvath (Contact Author)

University of New Hampshire ( email )

Department of Economics
10 Garrison Avenue
Durham, NH 03824
United States
6038620867 (Phone)

HOME PAGE: http://https://sites.google.com/site/jaroslavjayhorvath/

Jiansheng Zhong

Wolfe Research ( email )

420 Lexington Ave.
New York, NY 10170
United States

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